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Structuring Joint Ventures to provide the best chance of success

17 Mar 2022

One of the emerging corporate trends from the last couple of years has been the increase in the number of joint ventures that are being undertaken.

The imperative for this change is often about sharing the financial risks around a given project in what remains an uncertain economic situation, but there are also a range of benefits that can be derived from bringing together the different skills, knowledge and resources that the relevant parties can offer.

Many of these joint ventures have been around development sites, but they could equally apply to commercial property ventures or the creation of new businesses.

If you think a joint venture may be the best way forward for a particular project, the first consideration is identifying the best possible partner for what you have in mind.

You may already have contacts within your industry or wider business networks that you think may be suitable but taking the time to look at the track records of any other potential partners makes clear sense.

What can be equally important is the personal synergy between partners in a joint venture, as they are going to have to work closely over a significant period of time.

Finding out somewhere down the line that your chosen partner doesn’t hold the same values or work ethic as you, or can’t be trusted to fulfil their responsibilities, isn’t going to help the chances of your enterprise being a success.

Once you’ve secured a partner (or partners), it’s essential that you jointly agree who is going to have responsibility for which aspects of the project, what your objectives are, what success will look like and, perhaps most importantly, your exit route from the joint venture.

Agreeing this shared vision before work starts is the best way to prevent issues arising as the project progresses or nears completion, especially around identifying specific aspects of it that will need unanimous approval from all parties, such as the minimum value that any future offer to buy it from you needs to meet before it will be accepted.

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Formalising this in a joint venture agreement removes any uncertainty and prevents situations arising that could potentially derail your plans.

Another key aspect is agreeing the corporate structure of the joint venture. While an agreement between two separate individuals or entities without a separate joint venture vehicle can work in some instances, our experience suggests that forming a limited company or limited liability partnership (LLP) brings benefits.

This includes the ability for the joint venture vehicle to enter into contracts in its own right, limiting the liability of the respective parties and formalising the distribution of funds on an exit.

Setting up a joint venture can significantly increase the chances of projects being successful, and by taking a planned, structured approach to doing so, you can maximise your chances of this being the case for your next venture.

For advice on all aspects of forming, managing and exiting joint ventures, please contact Ben at ben.jackson@hay-kilner.co.uk.